Friday, July 14, 2017

With defunct streaming service Guvera very much in the spotlight in the Australian pressat the moment as questions are asked about how the digital music firm raised money from its grassroots investors, Aussie newspaper The Courier-Mail has returned to the British side of the story, having obtained the judgement in the legal case that was pursued by former employees of Blinkbox Music against the Guvera company.

As previously reported, in January 2015, with global expansion very much on its agenda, Australia-based Guvera bought the music side of UK digital content platform Blinkbox from of supermarket firm Tesco. Blinkbox Music had begun life as We7 and – like Guvera – had evolved its business from ad-funded downloads to ad-funded streams.

Both companies insisted that, unlike Spotify and Deezer, they were aiming to reach more mainstream consumers, and ad-funded free streams were a key part of the business, rather than just a way to upsell premium subscriptions. In that way, the alliance between Guvera and Blinkbox did make sense, and we expected Blinkbox Music to rebrand as Guvera in due course, giving the Australian firm an immediate userbase in the UK.

But it wasn’t to be. In June 2015 Blinkbox Music fell into administration, laid of its staff and ceased operations. And Guvera never did launch in the UK. Blinkbox employees subsequently took legal action against Guvera, with a legal rep declaring at the time that “at the point of the acquisition the employees received a written assurance from Tesco and Guvera UK that they would receive redundancy payments if cut backs were required – this agreement was not honoured”.

It’s the judgement in that case – which found in favour of the former employees – that The Courier-Mail has now seen, and the court papers reveal the inner turmoil within Guvera over the 2015 Blinkbox purchase. In particular tensions mounted in the wake of the acquisition between Guvera director Michael De Vere – who oversaw the Tesco deal – and the streaming firm’s co-founder and CEO Darren Herft.

According to The Courier-Mail, it was De Vere who first made the Guvera board aware that a then flagging Tesco was looking to sell its UK streaming music platform. Herft said he was interested in acquiring Blinkbox Music, though he had concerns over the UK company’s overheads – it employed 110 people and had monthly costs topping £1 million. To that end, Herft told De Vere that Guvera couldn’t do the deal with Tesco as it was currently written.

However, after further email exchanges between De Vere and Herft, the former did the deal, acquiring the Blinkbox Music business for £300,000, which was a good price at face value, except for the liabilities that Guvera was also taking on. According to the judgement: “When Mr De Vere emailed his colleagues in Australia [with] the news of the purchase, Mr Herft replied that Mr De Vere ‘was not authorised to do this'”.

In a frank exchange, Herft seemingly told De Vere: “I suspect you have just killed the company Michael – gd job”.

Nevertheless, Guvera was publicly confirmed as the new owner of Blinkbox, with the Aussie firm declaring to UK consumers “we’re joining the party!”

Behind the scenes tensions continued to grow, with confusion over whether the existing Blinkbox service would rebrand as Guvera, or whether Guvera would launch its existing platform in the UK and utilise Blinkbox’s database to sell it to consumers. Meanwhile, in April, Herft wrote to De Vere asking: “Do you have any MONEY to run Blinkbox as you have advised you will (otherwise Blinkbox is going under)”. Nevertheless, back in Australia, official Guvera literature started to include Blinkbox users in its subscriber figures.

While all this was going on, Blinkbox had been quietly downsizing its workforce. And by late April, the Guvera parent company sought legal advice about what to do with the Blinkbox company, with Herft subsequently proposing that one option was to allow it to fall into liquidation, and for Guvera to then buy some key Blinkbox assets from the liquidator, giving it the former Tesco subsidiary’s userbase without the liabilities.

Soon after De Vere departed Guvera, with the ex-director subsequently becoming embroiled in litigation with his former employer, which insisted he had done the deal to buy Blinkbox Music without board approval, an allegation he rejected. Meanwhile the legal action by former employees went through the motions, ultimately finding in favour of the axed staff, though the Guvera company pledged to appeal the decision.

Guvera ceased operations entirely in May, of course, leaving Herft – who had actually stepped down as CEO after a failed attempt at an IPO last year – as the only director.